Macroeconomic Consequences of Brexit...Macroeconomic Consequences of Brexit Understanding Brexit...
Transcript of Macroeconomic Consequences of Brexit...Macroeconomic Consequences of Brexit Understanding Brexit...
Macroeconomic Consequences of Brexit
Understanding Brexit Certificate Course
Metropolitan University Prague, June 2017
Oldřich Dědek Czech National Bank
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Contents
Importance of the UK for the Czech economy and possible
impacts
Alternatives to EU membership – a good topic to think about
for all those who flirt with the idea of leaving the EU
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Czech-UK foreign trade
Source: Czech Statistical Office
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Czech exports to UK (CZK billions)
Czech imports from UK (CZK billions)
Trade balance with UK (CZK billions)
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Importance of the UK for Czech exports
Exports to the UK accounted for 5.0% of total Czech exports in 2016 (fourth place)
Source: Czech Statistical Office
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Czech exports to UK (CZK billions) Share in total Czech exports, rhs
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Importance of the UK for Czech imports
Imports from the UK accounted for 2.3% of total Czech imports in 2016 (eleventh place)
Source: Czech Statistical Office
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Czech imports from UK (CZK billions) Share in total Czech imports, rhs
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Possible impacts on Czech exports
In 2016, 35.8% of Czech machinery and means of transport were exported to the UK
In 2016, exports of machinery and means of transport accounted for 69.9% of total Czech exports to the UK (Skoda Auto and TPCA)
Exports of passenger cars alone to the UK totalled CZK 51.8 billion in 2016
Among the most affected sectors are the car industry (230 to 400 jobs), engineering (120 to 360), electronics (30 to 80) and production of plastic and rubber products (30 to 70)
According to scenarios from analyses by international institutions (OECD), Czech exports in relation to the UK would lose a trade volume of 6%–9%, resulting in a net negative impact on Czech exports of 0.3%–0.5%
Source: Office of the Government: Analysis of the Potential Impacts of Brexit on the Czech Republic, 2016
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2016 2015 2016/2015
China 317,088 281,707 12.6% Germany 165,196 158,747 4.1% Czech Republic 88,016 85,005 3.5% United Kingdom 80,325 74,879 7.3% Poland 56,180 50,039 12.3% Russia 55,385 55,012 0.7%
Source: Skoda Auto (number of cars)
Skoda Auto exports
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Some other implications
The total long-term negative impact on the Czech economy in the form of the decline in GDP can be estimated at between 0.2% and 0.5% (in terms of current GDP this amounts to CZK 9–22 billion)¹
The total impact on employment in the Czech Republic according to the OECD would be a loss of 650–1,600 jobs (depending on the ability of the Czech economy to replace British imports)
The Ministry of Finance estimates that Brexit, in relation to the Cohesion Policy, will result in a worse budgetary position for the Czech Republic with regard to the EU budget of CZK 3–8 billion per annum²
Source: ¹ Office of the Czech Government: Analysis of Macroeconomics Impacts of Brexit, 2016 Source: ² Office of the Czech Government and MF CR: Impacts of Brexit on EU Budget, 2016
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Alternative models of trade relations
Membership in the European Economic Area (Norway or Iceland) Bilateral preferential agreements (Switzerland, Turkey or Canada) World Trade Organization membership without any form of specific
arrangement (Russia or Brazil)
Recommended reading: HM Treasury analysis: The long-term economic impact of EU membership and the alternatives, April 2016
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Hub-and-spoke trade arrangements
Asymmetry in negotiating power: decisive importance of the hub for all spokes versus much smaller importance of an individual spoke for the hub
Extreme variability in trade details depending on the relative economic strength of the hub and spoke
UK accounts for 14% of EU output; the figure for the Czech Republic is only 1.8%
EU
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The EEA Agreement extends elements of the Single Market to the members of the European Free Trade Association (EFTA)
The agreement covers the four freedoms (the free movement of goods, services, persons and capital), as well as competition and state aid rules, but also selected horizontal policies (consumer protection, company law, environment, social policy, statistics)
The EEA Agreement does not cover common agriculture and fisheries policies, customs union, common trade policy, direct and indirect taxation, economic and monetary union
Key benefits consists in tariff and quota-free trade with the EU on most goods with the exception of agriculture and fisheries
European Economic Area
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A customs union is a trade bloc within which members remove tariff barriers on each other’s goods and also adopt a common external tariff and trade policy for countries outside the union
Rules of origin determine to what extent (i.e. more than 60%) a product must be produced or processed within the EEA in order to be traded free of tariffs (measure against trade deflection) Given the complexity of global supply chains, determining where a good originated
can be an administratively complex and time-consuming process It may even be simpler and cheaper to pay WTO tariffs EU’s average tariff rate was 5.3% in 2014 (higher than in many other advanced
economies); furthermore, the EU’s import tariff schedule has an extremely wide range of tariffs around its average
Compliance with EU customs procedures Extra red tape: dozens of boxes requesting information, additional documents might
be required (proof of origin, customs value declaration, inspection certification) Consequences: time delays and costs, raising barriers particularly for small firms,
which have to navigate through complex rules and procedures
The EEA is not a customs union
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Common rules of the EEA Agreement are updated continuously with new EU legislation Representatives of the EEA EFTA States have the right to participate in expert
groups and committees of the European Commission and they should be consulted in the same manner as EU experts
The EEA EFTA States have no representation and no vote in EU decision-making bodies; they can neither sit nor vote in the European Parliament or the European Council
The Norwegian government in 2012 calculated that Norway has had to incorporate approximately three quarters of all EU laws into its own domestic legislation
Dynamic aspect of the EEA Agreement
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The EEA states are obliged to accept the free movement of people from both EU and other EEA countries
The EEA Agreement obliges the EEA States to contribute funds to reduce social and economic disparities in the EU (i.e. Norwegian funds)
Signatories of the EEA Agreement are subject to the jurisdiction of the EFTA Court, which in the vast majority of cases follows the principles in the ECJ’s rulings
Other facts worth remembering
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A number of countries have negotiated trade agreements with the EU Switzerland has a complex set of over 120 bilateral agreements, which represents
the most developed bilateral relationship with the EU Turkey is in a customs union with the EU and has a long-term aspiration to become
an EU member state The EU-Canada deal (CETA), not yet in force, is the most comprehensive
Reaching agreement on a wide range of issues is likely to be difficult Canada’s agreement has taken seven years Switzerland’s set of agreements has been negotiated over two decades
Each agreement is different but none of them provides Full tariff-free and quota-free trade (agriculture and fisheries are largely excluded) in
contrast to no internal tariffs on trade within the EU Guaranteed access to trade in services, especially in financial services
Bilateral agreements
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A customs union is characterised by the adoption of a common external tariff and a common trade policy vis-à-vis third countries
Customs union between the EU and Turkey Turkey has no freedom to develop trade policy with other countries across the world
except for sectors that are not covered by the customs union EU-Turkey customs union does not cover essential economic areas such as
agriculture, services or public procurements Turkey has to open its markets to any country the EU strikes an agreement with, but
it doesn’t get any say over how that agreement is formed and it must conclude separate agreements with these countries
In matters related to the customs union Turkey has to obey all laws and decisions of the European Court of Justice, where there is not a single Turkish judge
Turkey has to go along with the EU’s position in the World Trade Organisation despite the fact that its priorities for global trade may differ substantially
Customs union as part of the deal
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The Single Market has not yet eliminated all technical barriers (product regulations and standards, recognition of qualifications in services etc.) but it has gone further than any other free-trade area in reducing them
Mutual recognition agreements (MRA) A product placed on the market in accordance with harmonised technical
requirements circulates freely throughout the FTA Benefits of MRAs diminish over time as the regulations and requirements diverge
from those of the EU (no continuous amendments as in EEA) Case of Switzerland
More than 120 specific agreements, but only some services sectors are covered Swiss firms are bound by EU rules regulating the market access of third-country
firms (requirements to locate offices in the EU, barriers on the ownership of companies and many others)
Case of Canada The agreement is over 1,500 pages long, over 800 of which are exemptions from
free trade demanded by either side The EU retains over 500 exemptions in services liberalisation
Non-tariff barriers
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A leaving EU member cannot benefit from access to non-EU markets through the EU’s FTAs with them
A leaving EU member has to renegotiate the existing FTAs it has with the rest of the world through the EU (over 50 deals), as well as seeking to negotiate arrangements with countries the EU is currently negotiating with (a further 67 deals)
There is no guarantee to secure terms as good as EU FTAs, which are some of the most advanced FTAs in the world The economic weight of the EU makes it one of the most influential powers in trade
negotiations Many countries may prefer to focus on negotiations with the more important EU
trading block
Access to global markets
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The EU financial services passport allows firms to operate across the EU under a single licence. Where financial services operators are legally established in one member state they are able to establish branches or provide their authorised services in the other member states without further authorisation.
Neither Turkey, nor Canada, nor Switzerland has access to the passport. Instead, when conducting business on a cross-border basis, firms based in these countries need to meet authorisation requirements separately in each EU country in which they want to do business.
The European Commission, EU supervisory agencies, individual member states and the European Court of Justice would continue to have a large bearing on the non-EU country’s access to the EU’s financial services market.
Single passport
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Membership in the World Trade Organization provides a minimum set of rules for trade relations among its members (currently 162 countries) WTO membership frees countries from all the formal obligations that come with
access to the Single Market Potential gains would be significantly outweighed by the losses from the additional
regulatory barriers to trade from no longer being a member of the Single Market Flexibility to impose tariffs is impaired by the the Most Favoured Nation
rule In the absence of an FTA covering the relevant product, a WTO member must set
the same tariffs on imports from all other WTO members Preferential treatment given to EU imports (i.e. to avoid higher inflation) would need
to unilaterally eliminate tariffs on all imports from the rest of the world The WTO provides much more limited arrangements to handle trade
disputes Businesses cannot directly enforce their rights under WTO rules; only governments
can bring cases on behalf of businesses The WTO dispute-settlement process is burdensome in both time and resources
WTO global trade framework
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Thank you for listening